Oil prices drop in the face of stronger U.S. dollar

Oil recoiled Tuesday, hit by profit-taking and the stronger dollar on the eve of an informal meeting in Brussels where the eurozone's crippling sovereign debt crisis will top of the agenda. (AFP Photo/Joe Raedle)

Oil recoiled Tuesday, hit by profit-taking and the stronger dollar on the eve of an informal meeting in Brussels where the eurozone’s crippling sovereign debt crisis will top of the agenda.

Financial markets were also under pressure after Fitch slashed Japan’s credit rating by two notches on Tuesday, citing its “leisurely” efforts at shrinking a massive public debt.

In London late afternoon deals, Brent North Sea crude for delivery in July slid 29 cents to $108.52 a barrel.

New York’s main contract, West Texas Intermediate (WTI) crude for June dropped $1.07 to $91.50 a barrel.

The market had surged on Monday, rebounding from last week’s multi-month lows on speculative buying and as concerns resurfaced over Iran.

“Crude oil prices gave back early gains and slid lower on Tuesday, as the strong US dollar continued to weigh on the oil market, while investors try to remain cautious ahead of the European meeting that could clarify the economic prospects across the eurozone, providing a better insight about the debt crisis in Greece,” said Sucden analyst Myrto Sokou.

The strong greenback makes dollar-priced crude more expensive for buyers using weaker currencies. That tends to sap demand and pull oil prices lower.

Analysts warned that investor sentiment was also fragile ahead of Wednesday’s talks between key crude producer Iran and Western countries over Tehran’s nuclear ambitions.

Traders were buying crude ahead of Iran’s meeting with diplomats of the so-called P5+1 in Baghdad where sanctions against Tehran will likely be discussed, according to analysts.

The P5+1 group comprises the five permanent UN Security Council members Britain, China, France, Russia and the United States, plus Germany.

The meeting is the second between Iran and the group, with the first held on April 14 in Istanbul after a 15-month impasse.

“Tomorrow we will have to watch the headlines out of Baghdad regarding the P5+1/Iran negotiations,” added PetroMatrix analyst Olivier Jakob.

“The IAEA and Iran seem to have made some progress in Tehran yesterday for a new momentum on inspections, with the new framework expected to be finalised over coming days.

“Tomorrow’s meeting should be a key input for the trading range of the next few weeks.”

Iran faces a raft of sanctions from the United Nations, the United States and the European Union over suspicions that its nuclear programme masks a push to develop atomic weapons.

However, Tehran insists that the programme is for peaceful uses, and has pressed Western nations to lift the sanctions.

Several major customers of Iranian crude including India, Japan and Turkey have said they would reduce imports on Iranian oil, while a European Union crude embargo on Tehran is due to be fully implemented from July 1.